![Keep Us Strong](../../../static/gfx/ja-cg.jpg)
![WikiLeaks logo](../../../static/gfx/WL_Hour_Glass_small.png)
Currently released so far... 3954 / 251,287
Articles
Browse latest releases
2010/12/01
2010/12/02
2010/12/03
2010/12/04
2010/12/05
2010/12/06
2010/12/07
2010/12/08
2010/12/09
2010/12/10
2010/12/11
2010/12/12
2010/12/13
2010/12/14
2010/12/15
2010/12/16
2010/12/17
2010/12/18
2010/12/19
2010/12/20
2010/12/21
2010/12/22
2010/12/23
2010/12/24
2010/12/25
2010/12/26
2010/12/27
2010/12/28
2010/12/29
2010/12/30
2011/01/01
2011/01/02
2011/01/04
2011/01/05
2011/01/07
2011/01/09
2011/01/10
2011/01/11
2011/01/12
2011/01/13
2011/01/14
2011/01/15
2011/01/16
2011/01/17
2011/01/18
2011/01/19
2011/01/20
2011/01/21
2011/01/22
2011/01/23
2011/01/24
2011/01/25
2011/01/26
2011/01/27
2011/01/28
2011/01/29
2011/01/30
2011/01/31
2011/02/01
2011/02/02
2011/02/03
2011/02/04
2011/02/05
2011/02/06
2011/02/07
2011/02/08
2011/02/09
2011/02/10
2011/02/11
Browse by creation date
Browse by origin
Embassy Athens
Embassy Asuncion
Embassy Astana
Embassy Asmara
Embassy Ashgabat
Embassy Ankara
Embassy Amman
Embassy Algiers
Embassy Addis Ababa
Embassy Accra
Embassy Abuja
Embassy Abu Dhabi
Embassy Abidjan
Consulate Amsterdam
American Institute Taiwan, Taipei
Embassy Bujumbura
Embassy Buenos Aires
Embassy Budapest
Embassy Bucharest
Embassy Brussels
Embassy Bridgetown
Embassy Bratislava
Embassy Brasilia
Embassy Bogota
Embassy Bishkek
Embassy Bern
Embassy Berlin
Embassy Belgrade
Embassy Beirut
Embassy Beijing
Embassy Banjul
Embassy Bangkok
Embassy Bandar Seri Begawan
Embassy Bamako
Embassy Baku
Embassy Baghdad
Consulate Barcelona
Embassy Copenhagen
Embassy Conakry
Embassy Colombo
Embassy Chisinau
Embassy Caracas
Embassy Canberra
Embassy Cairo
Consulate Curacao
Consulate Casablanca
Consulate Cape Town
Embassy Dushanbe
Embassy Dublin
Embassy Doha
Embassy Djibouti
Embassy Dhaka
Embassy Dar Es Salaam
Embassy Damascus
Embassy Dakar
Consulate Dubai
Embassy Kyiv
Embassy Kuwait
Embassy Kuala Lumpur
Embassy Kinshasa
Embassy Kigali
Embassy Khartoum
Embassy Kampala
Embassy Kabul
Embassy Luxembourg
Embassy Luanda
Embassy London
Embassy Lisbon
Embassy Lima
Embassy Lilongwe
Embassy La Paz
Consulate Lagos
Mission USNATO
Embassy Muscat
Embassy Moscow
Embassy Montevideo
Embassy Monrovia
Embassy Minsk
Embassy Mexico
Embassy Maputo
Embassy Manama
Embassy Managua
Embassy Malabo
Embassy Madrid
Consulate Munich
Consulate Montreal
Consulate Monterrey
Embassy Pristina
Embassy Pretoria
Embassy Prague
Embassy Port Au Prince
Embassy Phnom Penh
Embassy Paris
Embassy Paramaribo
Embassy Panama
Consulate Peshawar
REO Basrah
Embassy Rome
Embassy Riyadh
Embassy Riga
Embassy Reykjavik
Embassy Rangoon
Embassy Rabat
Consulate Rio De Janeiro
Consulate Recife
Secretary of State
Embassy Stockholm
Embassy Sofia
Embassy Skopje
Embassy Singapore
Embassy Seoul
Embassy Sarajevo
Embassy Santo Domingo
Embassy Santiago
Embassy Sanaa
Embassy San Salvador
Embassy San Jose
Consulate Strasbourg
Consulate Shenyang
Consulate Shanghai
Consulate Sao Paulo
Embassy Tunis
Embassy Tripoli
Embassy Tokyo
Embassy The Hague
Embassy Tel Aviv
Embassy Tehran
Embassy Tegucigalpa
Embassy Tbilisi
Embassy Tashkent
Embassy Tallinn
USUN New York
USEU Brussels
US Mission Geneva
US Interests Section Havana
US Delegation, Secretary
UNVIE
Embassy Ulaanbaatar
Browse by tag
AF
AM
AE
AG
AR
ASEC
AS
AU
AORC
AJ
AMGT
AGMT
AFIN
APER
ABUD
ATRN
AEMR
ACOA
AEC
AO
AX
AMED
ADCO
AODE
AFFAIRS
AC
AL
ASIG
ABLD
AA
AFU
ASUP
AROC
ATFN
CH
CE
CA
CASC
CU
CLINTON
CO
CI
CVIS
CDG
CIA
CACM
CDB
CS
CBW
CD
CV
CMGT
CJAN
CG
CF
CN
CAN
COUNTER
CIS
CM
CONDOLEEZZA
COE
CR
CY
CTM
COUNTRY
CLEARANCE
CPAS
CWC
CT
CKGR
CB
CACS
COM
CJUS
CARSON
COUNTERTERRORISM
EUN
EG
EAID
ENRG
ETTC
EFIN
ECON
ETRD
EPET
EINV
EMIN
ECIP
ECPS
EINDETRD
EAGR
EU
EN
EZ
ELAB
ER
ET
ES
EUC
EI
EAIR
EIND
EWWT
ELTN
EREL
ECIN
EFIS
EINT
EC
ENVR
ECA
EXTERNAL
EINVETC
ENIV
EINN
ENGR
EUR
ESA
ENERG
EK
ELECTIONS
ECUN
EINVEFIN
IR
IS
IZ
INRB
IAEA
IN
IT
ID
IO
IV
ICTY
IQ
ICAO
INTERPOL
IPR
IRAJ
INRA
INRO
IC
IIP
ITPHUM
IWC
ISRAELI
IRAQI
ICRC
IMO
IF
ILC
IEFIN
INTELSAT
IL
IA
IBRD
IMF
ITALY
ITALIAN
KCOR
KDEM
KNNP
KU
KWBG
KPAL
KN
KS
KZ
KAWK
KISL
KPAO
KCRM
KJUS
KSEC
KIPR
KGHG
KIFR
KTFN
KDRG
KV
KSUM
KWAC
KAWC
KDEMAF
KFIN
KGIC
KTIP
KOMC
KHLS
KSPR
KGCC
KPIN
KG
KBIO
KHIV
KSCA
KE
KFRD
KPKO
KNUC
KMDR
KPLS
KOLY
KUNR
KIRF
KIRC
KACT
KRAD
KCOM
KMCA
KHDP
KVPR
KDEV
KWMN
KTIA
KPRP
KCIP
KCFE
KOCI
KTDB
KMRS
KLIG
KBCT
KICC
KGIT
KSTC
KPAK
KNEI
KSEP
KPOA
KFLU
KNUP
KNNPMNUC
KO
KTER
KHUM
KRFD
KBTR
KDDG
KWWMN
KFLO
KSAF
KBTS
KPRV
KMPI
KNPP
KNAR
KWMM
KERG
KTBT
KCRS
KRVC
KR
KPWR
KMIG
MOPS
MZ
MO
MNUC
MASS
MARR
MY
MEPP
MCAP
MA
MR
ML
MX
MIL
MTCRE
MPOS
MOPPS
MTCR
MAPP
MU
MG
MASC
MCC
MK
MTRE
MP
MDC
MAR
MEPI
MRCRE
MI
MT
MQADHAFI
MD
MAPS
MUCN
PREL
PTER
PGOV
PO
PHUM
PINS
PARM
PK
PINR
PINT
PBTS
PROP
PE
PL
PREF
POGOV
PINL
POL
PBIO
PSOE
PHSA
PKFK
PGOF
PARMS
PA
PM
PMIL
PTERE
PF
PALESTINIAN
PY
PGGV
PNR
POV
PAK
PAO
PFOR
PHALANAGE
PARTY
PNAT
PROV
PEL
PGOVE
POLINT
POLITICS
PEPR
PSI
PU
POLITICAL
PARTIES
PECON
SNAR
SA
SY
SOCI
STEINBERG
SP
SENV
SCUL
SF
SO
SR
SG
SW
SU
SL
SMIG
SN
SHUM
SZ
SYR
ST
SANC
SC
SAN
SIPRS
SK
SH
SI
UNSC
UP
UK
USEU
UG
UNMIK
UV
UZ
UY
UN
US
UNGA
UNO
USUN
UE
UNESCO
UAE
UNEP
USTR
UNHCR
UNDP
UNHRC
USAID
UNCHS
UNAUS
Browse by classification
Community resources
courage is contagious
Viewing cable 08LONDON2970, Spending Sprees And Tax Hikes: The Highs And Lows Of The
If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs
Understanding cables
Every cable message consists of three parts:
- The top box shows each cables unique reference number, when and by whom it originally was sent, and what its initial classification was.
- The middle box contains the header information that is associated with the cable. It includes information about the receiver(s) as well as a general subject.
- The bottom box presents the body of the cable. The opening can contain a more specific subject, references to other cables (browse by origin to find them) or additional comment. This is followed by the main contents of the cable: a summary, a collection of specific topics and a comment section.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol). Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #08LONDON2970.
Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
08LONDON2970 | 2008-11-28 16:04 | 2011-02-04 21:09 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy London |
VZCZCXRO1847
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHLO #2970/01 3331647
ZNR UUUUU ZZH
P 281647Z NOV 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 0522
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBL/AMCONSUL BELFAST PRIORITY 1174
RUEHED/AMCONSUL EDINBURGH PRIORITY 1028
UNCLAS SECTION 01 OF 03 LONDON 002970
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: Spending Sprees And Tax Hikes: The Highs And Lows Of The
UK Pre-Budget Report
LONDON 00002970 001.2 OF 003
¶1. (SBU) Summary: The November 24 2008 UK Pre-budget report (PBR) announces a GBP 20 billion stimulus package and deficit financing to respond to the recession brought on the global financial crisis. Government debt will double to GBP 1 trillion over the next few years before declining, and the budget will not be in balance again until 2016. The PBR projects the stimulus will add approximately 0.5 percent to the previously forecast negative growth for 2009 of -1.5 percent. The stimulus package includes a 2.5 percent reduction in the Value Added Tax (VAT), advancing infrastructure projects, and spending to help individuals and companies most affected by the economic downturn. The package will be paid for by future tax increases, including a 0.5 percent increase in the National Insurance levee. In addition, it includes a new upper tax bracket of 45 percent for the wealthy, signaling a return to income redistribution and an end to the "New Labour" policy not to increase the maximum tax rate. Politically, the PBR evidences Prime Minister Brown's transformation in the eyes of the public from an indecisive risk-averse ditherer who couldn't prevent a run on the Northern Rock bank to a decisive innovative thinker, willing to take bold action and lead the world's developed economies by example. Brown's turnaround in the polls, narrowing the Tory lead to single digits, is largely due to his emergence over the last few months as a leader in responding to the financial crisis. End Summary.
Background: PM Brown On The International Stage --------------------------- -------------------
¶2. (U) The first UK victim of the global financial crisis was the mortgage lender Northern Rock (NR). It sought funding from the Bank of England in the fall of 2007 as wholesale credit markets seized up. A run on the bank led ultimately to the government nationalizing NR in February. The government's handling of the NR crisis evoked widespread criticism of both Prime Minister Brown and Chancellor Darling. Their dithering was said to have made the NR crisis worse and was consistent with Brown's reputation for being highly risk averse and not wanting to make tough decisions. The dithering moniker contributed significantly to Brown's declining poll data through the first half of 2008. As the financial crisis worsened, Brown reversed his political fortunes by positioning himself and his government to appear as leaders in developing a global consensus on responding to the crisis and reforming the structure of the world's financial system. At the G-7 meeting in Paris, Brown argued for aggressive coordinated monetary policy action among central banks and significant fiscal stimuli. Brown continued these themes at the November G-20 meeting. His aggressive handling of the UK response to the deepening global financial crisis not only reversed his declining poll numbers but has narrowed the Tory lead to single digits. The 2008 PBR certainly reflects Brown's newly adopted preference for taking bold action.
Strategy: A Fiscal Stimulus Package
-------------- --------------------
¶3. (U) To respond to global financial challenges, the PBR proposes a large immediate fiscal stimulus package plus borrowing to offset declining government revenue. Without referencing Brown's "golden rule" that the government should only borrow to invest rather than to finance expenditure, and his "sustainable investment rule" that government borrowing should not exceed 40 percent of GDP, the PBR abandons them completely. The objective is to keep people employed, restore consumer confidence, and get them spending again. According to the PBR, the economy will turn around in the second half of 2009. Future taxes and a recovering economy will pay for the program. Significantly, the government signaled it was abandoning a key tenet of Tony Blair's "New Labour" and returning to Labour's traditional philosophy of income redistribution by announcing a new higher tax bracket on the wealthy.
The Key Elements
----------------
¶4. (U) The largest part of the Chancellor's GBP 20 billion fiscal stimulus package is a value-added tax rate cut of 2.5 percent to 15 percent from December 1, 2008 to December 31, 2009. This will ease the annual tax burden by GBP 12.4 billion. A number of public infrastructure projects, totaling GBP 3 billion, are being brought forward to support jobs during the slump. Increasing personal tax allowances will ease the tax burden a further GBP 3.6 billion, corporate tax measures will ease the burden on businesses by GBP 500 million and delaying higher vehicle excise duty rates for more polluting cars will ease the burden by GBP 500 million.
The Impact On Growth: Government Projections
---------------------- ---------------------
¶5. (U) The Chancellor told MPs that the measures adopted were designed to limit the length and depth of the recession. HM LONDON 00002970 002.2 OF 003 Treasury forecasts a short, shallow downturn with output recovering quickly by mid-2009. It forecasts GDP growth of 0.8 percent in 2008, between -0.75 percent and -1.25 percent in 2009, and positive growth of between 1.5 percent and 2 percent in 2010. These projections represent a marked change from those in the March Budget. In March, Darling estimated growth of about 2 percent for this year and 2.5 percent in 2009. These forecasts were based on the belief that the credit crunch would ease in the second half of this year and that financial market conditions would return to normal by 2009. Despite these substantial downgrades, Darling's projections are still more optimistic than many independent forecasts, particularly with regard the timing of a recovery.
Implications For Government Finance
-----------------------------------
¶6. (U) An economic slowdown, combined with a GBP 20 billion stimulus package, will have a dramatic impact on the state of public finances. The tough economic climate has significantly reduced tax revenue, with receipts from the financial sector alone expected to fall by 35 percent this year. This will result in higher borrowing levels - with forecasts of GBP 78 billion this year and GBP 118 billion in 2009, or 8 percent of GDP. UK net debt, as a share of GDP, will increase from 41 percent this year, to 48 percent in 2009/2010 and will peak at 57 percent in 2014. If these fiscal projections are accurate, the budget will not balance until 2015/2016.
The Next Challenge: Repayment
-----------------------------
¶7. (U) The record borrowing levels will be paid for via a tightening fiscal policy from 2011 (notably, this will occur after the next general election which must be held no later than 2010). National insurance contributions will increase for both employers and employees and a new 45 percent tax bracket will be introduced for those earning more than GBP 150,000 annually. The Chancellor also announced increased government efficiency savings of GBP 5 billion in 2010/2011.
Policy Implications
-------------------
¶8. (U) Environmental: The Chancellor said he is determined that the present economic uncertainty should not undermine the priority of protecting the environment. During his statement in the House of Commons, Darling announced that he has scrapped plans for a per-plane tax (introduced in the 2007 PBR) to replace air passenger duty (APD), despite cross-party support for the aircraft tax. Instead, a four-band APD will be introduced so those flying the furthest will pay the most. The reformed APD will be implemented from November 1 2009, moving from two to four distance bands to improve environmental signals. The policy u-turn was made, according to the Chancellor, in order to ensure greater stability and to protect competitiveness at a time of economic uncertainty, while also reducing emissions from aviation. The PBR extends the Renewables Obligation for an additional ten years, to 2037. (Note: The Renewables Obligation was developed as an incentive to encourage new renewables generation by placing a mandatory requirement for UK electricity suppliers to source a growing percentage of electricity from eligible renewable generation capacity. End note.) The Chancellor reconfirmed the UK's commitment to meeting its Kyoto targets, to legislation that sets binding commitments to cut emissions through the Climate Change Bill, and to the EU Emissions Trading Scheme.
¶9. (U) Business: The PBR included measures to improve business access to credit and to ease cash flow problems. The Chancellor announced that foreign dividends received by large and medium groups on ordinary shares and most non-ordinary shares will be exempt from UK tax. Small businesses facing difficulties will be able to spread their payable tax over an affordable timetable. HMG has also agreed a GBP 4 billion deal with the European Investment Bank to provide money to banks to pass on to SMEs. HMG will offer credit through a temporary Small Business Finance Scheme, allowing small businesses to borrow up to a million pounds on flexible terms. The Chancellor decided to defer the increase in the small companies rate of corporation tax. The total package of measures for businesses, including the money from the EIB, comes to GBP 7 billion.
Reactions: "Could Do Better"
----------------------------
¶10. (U) The Shadow Chancellor, George Osborne, said the PBR highlight the deception in PM Brown's claim to have abolished boom and bust. He noted that the Chancellor announced the largest amount of borrowing ever undertaken by a British government. Osborne said LONDON 00002970 003.2 OF 003 HMG's decision to double the national debt to GBP 1 trillion is the bill for Labour's decade of irresponsibility, initiated by the Prime Minister. He said the Chancellor has created a "huge unexploded tax bombshell", timed to detonate underneath the future economic recovery. Osborne added that this is confirmation of the "time-old truth that in the end all Labour Chancellors run out of money and all Labour governments bring this country to the verge of bankruptcy." He concluded that this PBR is all about the political, not the economic, cycle as the tax rises, planned for 2011, do not come until after the next general election.
¶11. (SBU) If the Chancellor had a report card, it would be marked "could do better" by the Director General of the British Chambers of Commerce, David Frost. Frost said there are a few good announcements, including the deferment of the Small Business Rate of corporation tax and allowing businesses to spread out the payment of their tax bill, but he was very critical of the proposal to increase national insurance contributions. He said that while the economy should be coming out of recession, businesses will face an additional tax. David Kern, the BCC's Chief Economist, notes that while the PBR goes a long way towards acknowledging the UK is facing a serious recession, the forecasts are too optimistic. He expects growth in 2009 to be worse than predicted and is doubtful that positive quarterly GDP growth would start as early as mid-2009. Professor David Miles, Morgan Stanley's Chief UK Economist, is more optimistic about HMT's growth forecasts and said the short term fiscal boost to the economy is substantial and will potentially generate a boost of 0.5 percent to 1 percent of GDP in 2009/10. However, Miles says the VAT cuts, while quick to implement, will likely not have as big a multiplier effect as other types of fiscal stimulus would have. TUTTLE